Take Down Credit Card Debt
[On-screen text] Take Down Credit Card Debt: The Right Way to Fight High Balance Credit Card Debt
Narrator: Credit card debt can be one of the toughest enemies you face as you fight to protect your financial realm. Armored heavily with high interest rates, regular minimum payments often barely make a dent in these debts.
[On-screen text] There are 2 basic strategies to reduce debt effectively. The style you choose depends on your situation.
Narrator: Luckily there are two strategies you can use to fight back effectively. Which method you choose really depends on your situation.
[On-screen text] But first… you must know your enemy
Narrator: But first, you must know your enemy to craft an effective strategy to win the war.
[On-screen text] Average credit card debt per U.S. adult = $5,596; cards that have a balance month-to-month = $7,743; average no. of card per cardholder = 3.7
Narrator: Average credit card debt in the United States is over $5,500, and is even more when you focus only on those who carry balances over every month. And while the average number of cards is less than four, that number often grows to five to ten for those fighting against debt problems.
[On-screen text Fighting style no. 1: Tiger Style. For those with the power to take big bites out of debt every month. Debts to target: Highest interest rate first
Narrator: Now fight: Tiger Style!
[On-screen text] How it works
Narrator: Here’s how you make this strategy work.
[On-screen text] Maximize your fighting power: Streamline your budget, cutting unnecessary expenses and boosting cash flow
Narrator: First streamline your budget by cutting out expenses that you don’t absolutely need and this will maximize your power.
[On-screen text] Hold off smaller enemies: Maintain the minimum payments on all of your debts except one
Narrator: Hold off on smaller enemies by making standard minimum payments, then focus all of that power to deliver powerful blows to the next debt with the highest APR.
[On-screen text] Take down biggest threat first: Make the largest payment possible on the debt with the highest interest rate
Narrator: This style uses your credit power to take out your biggest enemies in debt first so you target your debts in order of the highest interest rate.
[On-screen text] Move on to the next biggest threat: Once the first debt is done, roll your cash over to the next highest APR debt
Narrator: Once that first big boss is down, move on to the second and focus the bulk of your power to defeating it next.
[On-screen text] Start clearing the field: As you work your way down, you’ll have more cash power to eliminate debt even faster – you gain more power as you go!
Narrator: As you work your way down, taking out each opponent with the highest APR, you’ll begin to clear the field and gain power as you go.
[On-screen text] Eliminate multiple enemies at once, when possible: Once the first debt is done, roll your cash over to the next highest APR debt
Narrator: By the time you get to your smallest enemies, you should have enough power to cut down several enemies at once until all debts are eliminated!
[On-screen text] Are you a tiger? You need power to be a tiger – if you don’t have a large volume of cash available in your budget, you won’t have the power necessary to take bites out of your biggest debt threats.
Narrator: Tiger style is best used by fighters with the financial power already available. So, if you don’t have much cash on hand, you may not have the power needed to take out those big enemies quickly. In which case…
[On-screen text] Fighting Style No. 2: Crane Style. Peck away at your smallest debts first to gain the momentum you need to win. Debts to target: lowest balance first
Narrator: Crane Style may be your best method.
[On-screen text] Find any available seed money to feed your fight
Narrator: Scour your budget for any little bit of cash you can use to eliminate debt and make minimum payments to keep your biggest enemies at bay.
[On-screen text] Keep combatants on the field: Keep up with minimum payments on all of your debts
Narrator: Target debts with low balances first because they’re easy to wipe out. Here’s how this strategy really works.
[On-screen text] Start by pecking away at your smallest debt: Devote all of your extra cash to make the biggest payment possible on your lowest balance
Narrator: This method pecks away at smaller enemies first so you can gain power as you start to clear the field.
[On-screen text] Each debt eliminated boosts your energy: Every time you pay off a debt, you eliminate that bill so there’s more cash to face bigger enemies
Narrator: Next devote your focus to taking down the debt with the lowest balance. You’ll gain monetary power each time you cut down a debt because there will be one less debt to eliminate.
[On-screen text] Work your way up to the biggest baddies: Once you’ve cleared out all of the small debts, roll those savings into the cash you’re using so you can take out the biggest threats.
Narrator: By the time you get to your biggest balances, you’ll have the power you’ll need to take them down!
[On-screen text] Are you a crane? If the debts that have the highest interest rates are also the ones with the biggest balances and you don’t have a lot of cash, then it makes sense to start at the bottom and work your way up.
Narrator: Crane style is best suited for debt fighters with limited cash flow who need to gain momentum as they battle.
[On-screen text] Consolidated Credit. When debt is the problem, we are the soluti8on. Call 800-210-3481, www.consolidatedcredit.org
Narrator: And remember, if you’re having trouble winning your battle, Consolidated Credit is here with reinforcements that can help you win!
Finding the right credit card debt reduction strategy for your budget.
You may wonder why you need a debt reduction strategy at all. After all, credit card companies provide minimum payment requirements on your monthly credit card statements, so why can’t you just use those?
Namely, minimum payments don’t work that way because a minimum payment schedule isn’t designed to get you out of debt quickly or efficiently. That schedule is how credit card companies make their money – interest charges are effectively the cost you pay to carry balances over from month to month.
Even creditors themselves will tell you that you need to pay off your debt faster in order to really use your credit cards effectively. In fact, thanks to the Credit CARD Act of 2009, your credit card statements carry a minimum payment warning that shows exactly how many years and how much you’ll pay in interest charges using minimum payments, as well as how much you can save by making a more reasonable fixed payment schedule.
Why it’s important to focus on one debt at a time
If you notice in both debt reduction strategies outlined in the video, your debt-reducing attention is always focused on one debt at a time while you make minimum payments on all of the others. The reason for this is efficiency and – in the case of the “tiger style” strategy – cost savings in interest charges.
By focusing your energy on one debt at a time, you give yourself the incentive you need to keep up with debt reduction – as you eliminate each debt it gives you motivation to keep going and take down the next one. If you have 10 credit cards, each with a $1,000 balance and try eliminating all of them at the same time with equal payments, it’s likely you’ll still be paying those 10 bills each month every month for the next few years until you’re finally debt free. It’s hard to keep up your strategy if you don’t have any real proof of your progress.
By contrast, if you focus on one debt, then you gradually start to cut one bill at a time. A few months in, you’re down to 9 bills, then 8 and so on. It’s motivating to get each debt paid off so you can build momentum.
You also avoid a situation where you wind up with an array of small debts all accruing interest charges individually. If you’re carrying balances on several different cards, that’s several different interest rates that are getting applied each month. Your debt ends up costing you more if you spread out your focus instead of devoting all your cash towards one debt at a time.
How long should debt reduction take?
The time it takes to eliminate debt really depends on how much debt you have and how much cash flow you can make available. However, a good rule of thumb is that you should be able to eliminate all of your debts in-full within five years (60 payments). If you can’t develop a strategy that can make that happen, then you need to find an alternate means of debt relief.
If you’re having trouble finding a way to make debt elimination work for you, call Consolidated Credit today at 1-888-294-3130 or complete an online application to request a confidential debt and budget analysis from a certified credit counselor. You can get an unbiased expert opinion on the best path out of debt in your situation at no charge so you have a better idea of how to move forward.
